BNP Paribas sold a Eu500m long seven year covered bond today (Wednesday), attracting around Eu1.3bn of demand despite being priced well inside the French sovereign after a substantial 6bp tightening of the spread, with bankers citing the top tier issuer’s strength and relative rarity.

The French bank’s new issue was launched into a more accommodating market than a wave of recent French supply, with OATs having remained stable this week after substantial widening since the turn of the year upon uncertainty over country’s upcoming presidential election.

BNP Paribas Home Loan SFH leads BNP Paribas, Banca IMI, Bank of Montreal, Danske, Nordea and UniCredit launched the Eu500m no-grow July 2024 issue with guidance of the 3bp over mid-swaps area, before revising guidance to the flat area on the back of books in excess of Eu1bn. The spread was ultimately set at minus 3bp on the back of unreconciled orders of Eu1.3bn, with leads citing a “strong finish” with a substantial amount of late orders.

Bankers away from the deal noted that such a sizeable movement in the price is unusual.

“It’s been quite some time since we’ve seen 6bp of tightening on a covered bond, especially a tightly-priced core trade,” said a banker away from the leads. “But they started quite a long way back of secondaries and got quite a lot of demand, which explains the aggressive move.”

Citing BNP Paribas March 2022s at minus 13bp, mid and November 2024s at around minus 11bp, mid, bankers said the new issue offered a concession of around 7bp.

The new issue was ultimately priced around 7bp inside the sovereign, with the May 2024 OAT seen at around 4bp this morning.

“It looks like the leads adopted the successful approach used by BPCE last week, by pricing based on the underlying OATs rather than the issuer’s curve, and starting with guidance at around the level of the underlying sovereign,” said another banker away from the deal. “Given the weakening of RV versus OATs for French covereds, and the recent volatility, it makes sense.”

BPCE SFH’s Eu750m seven year issue on Friday – the last French benchmark – was similarly successful, attracting Eu1.4bn of orders, having been priced with at 6bp over mid-swaps, with a 4bp-5bp premium versus the issuer’s curve and a slim pick-up versus the sovereign. The deal was seen trading at around re-offer to slightly tighter today.

“I would argue, however, that for today’s trade the OAT was of less relevance than it might have been one week ago,” said a syndicate banker at one of the leads. “I think there were more important dynamics that investors considered, including the issuer’s own curve, the issuer’s relative rarity in the covered bond market, and the issuer’s strength.”

BNP Paribas has since 2014 issued just one benchmark covered bond per year, the last a Eu750m five year via BNP Paribas Home Loan SFH in January 2016.

“I think investors were looking at this deal on its own merits and compared with other French or core covered bonds, and in that context it still offers value,” added the lead banker.